Question

Identify the statements below that are correct regarding the closing entries for a merchandiser using the perpetual inventory system?

1. Sales is closed as a revenue account
2. Sales Returns and Allowances is closed with the expense account
3. Sales discounts is closed with the expense account
4. The dividends account is closed to Retained Earnings
5. Cost of goods sold is closed with the expense accounts

Answer 1

Closing entries correctly apply to Sales, Dividends, and COGS accounts in a perpetual inventory system, while Sales Returns and Allowances and Sales Discounts are closed against sales. The merchandise balance and current account balance are calculated using values of exports and imports, income payments, and receipts.

Step-by-step explanation:

To identify the correct statements regarding the closing entries for a merchandiser using the perpetual inventory system:

• Sales is closed as a revenue account, which is accurate.
• Sales Returns and Allowances is closed against sales, not with expense accounts, so this statement is not entirely accurate as phrased.
• Sales Discounts is also closed against sales and not recorded as an expense, making this statement inaccurate as stated.
• The dividends account is indeed closed to Retained Earnings, which is correct.
• Cost of Goods Sold (COGS) is an expense account and is closed with the expense accounts, but as a direct cost related to the sale of goods, which is correct.

To calculate the merchandise balance and the current account balance, you would consider the values of exports and imports of goods and services along with income payments and receipts. The merchandise balance is calculated by subtracting the value of imports from the value of exports. The current account balance includes the merchandise balance along with net income from abroad and net current transfers.